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Investing.com -- Piper Sandler has initiated coverage on SoundHound AI (NASDAQ:SOUN) with an Overweight rating and a $12 price target, describing the company as a “direct play on the A.I revolution” through its voice-AI platform.
The company’s shares jumped 5% in premarket trading Tuesday.
The broker’s analysts argue that SoundHound’s technology, particularly its combined ASR and NLP architecture, offers a competitive advantage in delivering dynamic, real-time conversational AI experiences.
SoundHound’s product suite spans across the auto, IoT, restaurant, and customer service sectors, with Piper Sandler identifying quick-service restaurants (QSRs) and customer experience (CX) as the company’s most promising verticals.
The acquisition of Amelia has enabled SoundHound to enter the conversational AI space for contact centers, which Piper Sandler sees as a $30 billion addressable market by 2027.
“Combined, we see a $30B serviceable addressable market by 2027, with SoundHound an early leader in each market,” analysts James E. Fish and Caden Dahl said in a Monday note.
They also see improving financial leverage as the company transitions to a subscription-based model. Subscription and “Over-Time” revenues are expected to comprise about 90% of total revenues by 2027, up from just 4% two years ago.
Piper believes this shift, along with anticipated synergies from the Amelia acquisition, will help drive margins higher. “At a minimum, we think synergies could boost margins by >10% over the next few years.”
Despite their bullishness for the long-term opportunity, SoundHound is not without its challenges, particularly in the auto segment where production headwinds persist.
Auto exposure is currently around 25% of global production, but SoundHound’s four key OEM clients are expected to see a 4% decline in sales this year.
“We are wary of other items such as auto production, low profitability but need for more awareness, and debate around organic growth, but see the opportunities and setup as more compelling at these levels,” the analysts concluded.